Hot issues by Burson-Marsteller EMEA

March 2012 Edition 11

Welcome This is the latest edition of “Hot Issues” from Burson-Marsteller’s Global Public Affairs Practice. Every month, “Hot Issues” focuses on new forthcoming legislative or policy issues that will impact business from around our global network of 150 offices in Latin America, Asia-Pacific, Europe, Middle East, Africa and North America. The public policy dynamics in each country, let alone a particular region can be very different, demonstrated by the different experts we utilize in the countries where we operate. Conversely, there are similarities and you can see this in some of the issues we have picked out. Hot Issues are designed to give you a flavour of our global perspective and should any of the items raise particular interest with you, please contact the designated person listed with that issue.

Singapore: Tightening of Financial Rules to Combat Money Laundering On February 16, Singapore’s Monetary Authority and the ministries of Finance and Home Affairs announced that the island-state would implement new recommendations put forward by the global Financial Action Task Force (FATF) to combat money laundering and terrorist financing. By committing to these tighter rules, the authorities hope to maintain the Singapore’s attractiveness as an international financial and wealth management centre. The revised standards set forth by the FATF address new priority areas such as tax crimes, corruption and politically-connected individuals. The FATF Recommendations, which apply to more than 180 countries, set out measures that countries should follow to prevent money laundering and terrorist financing. The Task Force has expanded the scope of money laundering to include serious tax crimes. While tax evasion is a money laundering offense in many other countries, it is not in Singapore. If the tax evasion law in Singapore is amended according to the FATF recommendations, banks will have to alert authorities to any overseas customer bringing in funds that are suspected to be the proceeds of tax evasion in their home country. The FATF has also recommended extending background checks for politically-connected individuals to include all foreign and domestic personnel, current and former senior officials in all branches of government, individuals from international organizations, and family and close associates of anyone considered to be a politically-exposed person. To help build a strong foundation for Singapore’s private banking industry, the country’s banking industry association, the Private Banking Industry

Group (PBIG), has indicated that it will adopt industrywide practices complying with the FATF recommendations within the next 12 months. Pressure to beef up the regulatory regime is also high because an increasing number of European banks have set up operations in Singapore over the past five years. Analysts also speculate that more foreign deposits will come into Singapore as clients of collapsed banks in Europe look at Singapore as a safe haven. Greater transparency and an improved regulatory regime will be essential if Singapore is to discourage money launderers and ensure that the European banks’ Singapore operations can comply with regulations in the EU. Several banks, like UBS and HSBC, have welcomed the Government’s commitment to implement the FATF guidelines. However, the Monetary Authority of Singapore has also warned that changes in other legislation, like the Corruption, Drug Trafficking and other Serious Crimes Act, may be required to ensure effective implementation of any changes to the financial regulations. The government will still have to review international cooperation agreements and the existing regulatory regime to work out details and definitions for the introduction of any new laws or amendments. A specific timeline for the introduction of new legislation tightening the regulatory regime and criminalizing tax evasion as a predicate offence has not yet been proposed, but the industry believes the moves will likely be introduced this year.

Contact Evelyn Kusnawirianto - Evelyn.kusnawirianto@bm.com Joy Albert - joy.albert@bm.com

China: New Tax on Foreign Qualified Institutional Investors on Capital Gains Chinese regulators increased the investment quota for qualified foreign institutional investors (QFIIs) in January, and now a plan for new tax rules on QFIIs is currently being reviewed in China with regulators and institutional investors including custodian banks and brokerages. The new tax rule may put an end to the nine years of tax exemptions on stock investment earnings that QFIIs have enjoyed in China. The tax, projected to be 10%, will fall under income taxes, and losses from stock investments will not be deductible under the new rules proposed by the Securities and Futures Commission. The plan is seen as the Chinese government’s effort to strengthen capital controls. The current QFII guidelines lack clarity on whether capital gains should be taxed and this has been a major problem for foreign institutional investors’ remittance of profits and investment funds. Analysts said that despite the attractiveness of the Chinese financial market, many institutional investors hesitate to include large positions in Chinese stocks when they allocate investments because of unclear policies in a number of areas, most notably the tax issue. While clarification on the tax issue may be welcomed by most foreign institutional investors, many have voiced concerns about the effect of a tax on their profits. According to the Chinese State Administration of Foreign Exchange, overseas financial institutions have invested about US$22.24 billion in stocks and exchange-traded bonds in China as of January, 2012. If the new tax is levied, the tax hit on foreign financial advisory firms may be significant. Some new QFIIs, like Cathay Financial Holdings and Fubon Financial Holding from Taiwan, have said they are particularly

worried about how the new tax will affect their earnings. Some foreign banks have also argued that a tax only on foreign institutional investors is not fair as retail investors or individual mutual funds are not subject to taxation. A further concern involves the possibility of QFIIs paying double tax if the country they are registered in, such as the Cayman Islands, has no tax agreement with China. Analysts have warned that a high capital gains tax may force some foreign investors to exit China. This will not be a desirable scenario for the Chinese government. Capital outflow has already accelerated over the past six months, easing previous concerns about an abundance of hot money. In response, China dramatically increased the QFII quota in January to $600 million, which is already one-third of the total amount granted in 2011. Analysts estimate that QFII quota will total more than $40 billion by the end of the year. Chinese regulators have also simplified the administrative procedures for the review of QFIIs to encourage foreign participation in the Chinese financial markets. Details as to how and when the tax will be collected will need to be clearly laid out if there is to be smooth implementation and compliance of this proposed new law. The Securities and Futures Commission is working with other government agencies to examine the potential impact of the new tax rule plan. A draft of the new rules will be published soon.

Contact Evelyn Kusnawirianto - Evelyn.kusnawirianto@bm.com Joy Albert - joy.albert@bm.com

Hong Kong: More Changes to Competition Bill Hong Kong’s proposed Competition Bill has prompted heated discussion as many business organizations and industry associations believe the draft needs to be further amended and refined. On February 14th, the government’s Commerce and Economic Development Bureau proposed 570 statutory bodies to be exempted from the Competition Bill, attracting strong criticism from legislators and industry associations. The Hong Kong Trade Development Council (HKTDC), the Housing Authority, the Housing Society,

and the Hospital Authority are on the proposed list for exemption. The Competition Bill contains three general prohibitions. Under the first conduct rule, agreements, decisions and concerted practices such as price-fixing, agreements limiting technical development or investments, and market collusion that may prevent, restrict, or distort competition in Hong Kong are prohibited. The second conduct rule

prohibits abuse of an organization’s substantial degree of market power to limit production, markets or technical development. A “Merger Rule” is also included to regulate mergers involving relevant licensees in the telecommunications industry, with the possibility to extend on a cross-sector basis in the future. Enterprises with annual turnover of less than HKD$11 million and certain statutory bodies are exempted as they are not considered to have substantial impact on competition and the economic efficiency of a specific industry.

great deal of criticism. Many industry associations, legislators, The British Chamber of Commerce, and The American Chamber of Commerce have argued that the HKTDC should not be exempted as it clearly engages in economic activities by competing with private organizations in hosting exhibitions and trade shows. It also has a substantial degree of power in the exhibition market with a 30-40% market share. Analysts said exempting certain public bodies from the law may distort competition and turn the law into a tool justifying unfair competition.

If the law is enacted, some sectors may be opened up for increased competition. The electric utility market in Hong Kong, for example, has long been dominated by Hong Kong Electric Co. and China Light & Power Co. Local commentators said that the city’s electric grid has been locked up by the two companies for years, thus effectively barring foreign electric utility firms from supplying electricity to Hong Kong. The Competition Law could require them to open up the electric grid for foreign companies to enter the market so that electricity costs for consumers could potentially be lowered. While some foreign chambers of commerce have commended the bill’s potential for opening up competition, the exemption of statutory bodies, in particular, the HKTDC, is generating a

The Competition Bill will go through several rounds of review in the coming months and if it wins approval in the Legislative Council this Summer, it may be implemented as early as next year. As the debate continues in Hong Kong, industry groups, legislators, foreign and local businesses are expected to intensify their push for further changes to the details of the Competition Bill.

Contact Evelyn Kusnawirianto - Evelyn.kusnawirianto@bm.com Ian McCabe - ian.mccabe@bm.com

South Africa: Reforms to the Mining Sector For the past three years, the South African ruling party’s youth wing, the African National Congress Youth League (ANCYL) has been advocating for the nationalisation of South African mines. This created uncertainty for the mining sector and other sectors such as banking. Mixed messages from the party senior structures did nothing to diffuse the tensions. The ANC also commissioned a study in 2011 that would allow it to make informed decisions on the issue. In early February 2012, a 600-page report, titled State Intervention in the Minerals Sector (Sims) was presented to the ruling party’s National Executive Committee (NEC). Although the report does not propose nationalisation, it proposes options for increasing the contribution of the country's minerals sector to development and poverty alleviation, and envisages a significant shift in national policy and changes to virtually every aspect of the sector

including mineral resource management at cabinet level. The issue will be discussed at the ANC’s national policy conference in June, itself a precursor to the party's elective conference in December 2012. The implications of this report on the mining sector particularly are bound to be far-reaching. The Sims report provides a framework for debate and nationalisation will remain a possibility although an increasingly unlikely one. Sims is very clear on the need for a decisive state role in reorganising and managing the minerals sector, arguing that market forces alone will not help to align South Africa's rich and diverse mineral resources with its developmental needs.

Contact Lyn Fourie - lyn.f@arcaybm.com

Sweden: Launch of Global Initiative to Reduce Emissions of “Climate Forcers” Swedish Minister for the Environment Lena Ek and US Secretary of State Hillary Clinton launched a global initiative to reduce emissions of short-lived climate forcers (SLCFs) which is a collective term for black carbon particles, ozone and methane. As the name suggests, short-lived climate forcers stay in the atmosphere for a relatively short time when compared with carbon dioxide which is known to have a very long-term impact on the climate. The Swedish Government hopes that by reducing SLCFs’ emissions, it will have a correspondingly rapid impact in relation to climate change. Together, Sweden, Bangladesh, Canada, Ghana, Mexico and the United States have formed a global partnership for reduced SLCF emissions. The intention is to identify and discuss future common strategies at international, regional and national levels as well as creating regional platforms to increase private sector investments.

An ambition is that other countries, sharing the goals and being prepared to take active measures, will join the partnership. NGOs and business adhering to the same goals are likewise welcome to participate. According to a UN study, financed by Sweden, a reduction of the emissions covered by the initiative would reduce the number of premature deaths due to polluted outdoor air by 2.4 million and the number of deaths related to polluted indoor air by 1.6 million annually. Annual losses of 52 million tons of crops of rice, soya, maize and wheat would be avoided and global warming could be reduced by 0.5 degrees up to year 2050.

Contact Åse Lidbeck – ase.lidbeck@bm.com

Brussels: EU to Revise Pricing and Reimbursement Rules for Pharma Products The European Commission has published its proposal for the revision of the legislative framework which sets harmonised provisions to ensure the transparency of pricing and reimbursement of medicinal products.The Directive 89/105, known as the Transparency Directive treads a fine line between the EU’s aim to ensure a level playing field for pharmaceutical products on the one hand, and the member states’ exclusive competence to organise their health systems on the other. While the Directive does not set rules for the pricing or reimbursement of medicines,it establishes that such rules have to be transparent, based on objective and verifiable criteria, made within a specific timeframe, and open to judicial appeal at the national level.

pharma industry and governments. During the public consultation that took place in early 2011, the pharmaceutical industry has mainly pleaded for a shortening of the decision timelines but also brought into the discussion issues related to how reimbursement decisions are made (health of the scope for EU legislation, and lacks a common legal definition across the EU – a legal technicality that will also likely cause a heated political debate. The pharma industry would like to see wider considerations taken into account when making reimbursement decisions, such as the potential cost-saving impact of new therapies on healthcare spending in the longer term.

The review of the Directive was set as a major commitment by Commissioner for Industry and Entrepreneurship at his designation in early 2010. It will build on case law and is likely to bring only a small change in the EU competences, but enough to raise both hopes and fears among the European

From the perspective of the national governments, a major fear is that the revised legislation will make it more difficult for countries to impose healthcare cost-containment measures, an increasingly popular objective among member states in the context of Europe’s economic difficulties. Industry, on the other

hand, is calling for an end to price referencing, a practice that it fears will lead to a race to the bottom in terms of pharma prices. The review of the Transparency Directive will have the potential to address some of the most pressing industry challenges in terms of access to markets and increasing the accountability of national pricing and reimbursement processes; in return, it will put to the

test both its relationship with European healthcare systems and its contribution to solving governments’ concerns over the sustainability of healthcare financing.

Contact Ane Sofie Böhm Nielsen – ane-sofie.nielsen@bm.com

Italy: New Government Pushes Liberalisation With Mario Monti now at the helm of the Italian Government, there has been a renewed vigour to bring in reforms to help bolster the nation’s economy. The outside pressure from EU governments has added to the sense of urgency, and the government has taken measured steps on pensions and taxes to help the State’s coffers. However, the main thrust of the legislative package is dedicated to economic growth.

In energy, there will be a major shake-up in the pipelines for the fuel market: distributors will no longer be tied to only one supplier, as it is the case now. Sole distribution agreements will be valid only up to 50% of the distributed fuel. The electricity market will also be divested from the gas market, although government-controlled companies will carry on the management in both cases.

Several sectors are under the scope of the package, from the organization of professional associations to services such as mail or rail transport. In the healthcare sector, the opening and closing times of pharmacies will no longer regulated, allowing them to open during the night or on Sunday. There will also be more pharmacies, with increases in the number of available licenses which were limited previously by the number of local inhabitants. Doctors will also be obliged to say when a generic drug is available to a “branded” one.

Rail will face possible liberalization with the separation of facilities ownership from the management of the transport service.

For other services, there are a range of measures put forward: Increasing the number of licenses for taxis, or even to open the market completely by abolishing the requirement of having an administrative license for taxi drivers. Fees for lawyers, architects, engineers and accountants will not be limited by maximum and minimum amounts. Banks will have to offer a basic bank account with minimal expenses, enabling each citizen to open one - in Europe, almost 30% of people over 18 years old do not have one.

These measures are supported by statistics from Banca d’Italia Working Papers1 which suggest that increased competition over five years will boost Italy’s rankings in the Organisation for Economic Co-operation and Development (OSCE) area, with significant macroeconomic benefits. They also suggest that in the long-term, GDP could increase by 11%, private consumption and employment by 8%, investments by 18%, and salaries by 12%. Not surprisingly, those affected by the proposed reforms have reacted strongly. Strikes have been organized and continue to cause logistical problems for local communities. But the government is determined to make progress and as a result negotiations are ongoing to find a way forward.

Contact Vito Basile - vito.basile@bm.com Irma Cordella - Irma.cordella@bm.com

1. Banca d’Italia, Macroeconomics effects of greater competition in the service sector: the case of Italy, by Lorenzo Forni, Andrea Gerali and Massimiliano Pisani, n.706, March 2009

Colombia: Reviewing the General System of Royalties Columbia introduced a new law on January 1st to regulate the organization and functioning of royalties from the exploitation of non-renewable natural resources. The law ensures a fairer distribution of royalties so that regions who are not producers of oil and gas or mineral resources will begin to receive them. For this purpose, several funds have been created with different functions and budget allocations, in order to rationalize the use of money. The funds are: Fund for Science, Technology and Innovation. US$ 439 million. Designed to increase the scientific capacity, technological innovation and regional competitiveness through projects that contribute to the production, use, integration and appropriation of knowledge in the production system, taking into account biotechnology and technology projects. Regional Development Fund. US$ 365 million. Financed from the remaining resources of the Regional Compensation Fund and all regions will have access to the financing of investment projects which have a regional impact, as agreed between the Government and local authorities.

Regional Compensation Fund. US$ 722 million. Aiming to generate resources to the country's poorest regions, which are not producing and that therefore lack the resources to sustain themselves. These are mostly in the coastal and border areas. Savings and Stabilization Fund. US$ 878 million. Created to bring more stability in those times when revenues decline in the producing regions. Pension Savings and Territorial Fund. US$ 439 million. The fund will go towards the coverage of pension liabilities, which can result from a natural disaster. The initiative also prioritize distribution of revenues generated from the mining and energy sectors to the poor to help social equity, and in turn helping development and competitiveness throughout the country. This new General System of Royalties represents an opportunity for all companies that are looking to invest in Colombia, through technological or scientific recruitment with the Colombian government or by semi-private pension funds.

Contact Miguel Angel Herrera – miguel.herrera@bm.com

Mexico: Biofuels Present a Sea of Opportunities With finite global oil supplies and the threat of Climate Change, governments around the world are looking at ways to encourage the development of sustainable fuel technologies. For Mexico, biofuel production is a key long-term priority and also as a way to boost the development of the agriculture and livestock sectors. According to the Mexican Law of Promotion and Development of Biofuels, these are defined as fuels obtained from the biomass of organic material from agriculture, livestock, fishing, domestic, industry and other activities and their derivatives produced by technological sustainable processes. Today, the Mexican biofuels market has two major marketing channels: one is the PEMEX (Petróleos Mexicanos) demand for bioethanol or biodiesel; the second is the export to markets where demand is far greater than production capacity, such as the United States. But public policy is now being designed to encourage large-scale biofuel production, offering

business opportunities for farmers and industry stakeholders. For example, the State of Inverbio’s Institute of Bioenergetics and the Council of Science and Technology (Convecyt) signed an agreement calling for the development of new technologies to produce and use biofuels obtained from vegetable crops. Inverbio expects that within three years, the State will have a considerable biofuel production to supply public transportation. Mexico presents a real opportunity for the biofuel industry because of the financial incentives that are now available. But companies will need a comprehensive knowledge of the institutional framework that regulates and supports biofuel production as well as the right communication strategy to access this.

Contact Lucas Silva Wood – lucas.silva@bm.com

US: Is Nuclear Power Back on Track? Nuclear power took its first step forward in the United States in more than 30 years on Feb. 9 as the U.S. Nuclear Regulatory Commission (NRC) granted Southern Co. and other utilities a license to build two new reactors at an existing two-plant site in Georgia. The approval moved Southern closer to garnering a critically important federal loan guarantee, although U.S. Energy Secretary Steven Chu said additional hurdles remain before the loan deal is finalized. The licensing decision was not without controversy, as NRC Chairman Gregory Jaczko voted against the license. The other four commissioners -- two Republicans and two Democrats – voted for the license, overriding Jackzo’s objections. Twelve antinuclear groups have also filed a lawsuit to overturn the NRC’s decision and prevent issuance of the license, claiming that Southern should have been required to agree to meet any safety changes the NRC crafts in the coming months. Additionally, Democrats have argued that the proposed loan guarantee should be reviewed in detail by Congress in the wake of the bankruptcy of solar manufacturer Solyndra in late 2011, which filed for bankruptcy despite having received a $535 million federal loan. One of the anti-nuclear groups is suing the U.S. Energy Department for failing to disclose information about the $8.3 billion loan guarantee for the new Vogtle reactors. The Energy Department has said information the groups are seeking is proprietary and not available to the public. NRC hopes to finalize a set of safety rules stemming from the crisis last year at Japan's Fukushima Daiichi

nuclear plant. NRC officials said any new provisions that come from the Fukushima review will apply to new and existing reactors, and will apply to different types of reactors. Southern Co. has said publicly that it will make any safety changes the NRC requires related to the Fukushima disaster. The company also noted that its seven-year licensing process has been "deliberate, thorough and thoughtful." The consortium of utilities led by Southern Co. began initial construction on the $14 billion reactors at the Vogtle site, about 170 miles east of Atlanta, Georgia, in 2011. Unit 3 is expected to be operational by 2016 and Unit 4 by 2017. The NRC is also expected to address a license application for the V.C. Summer project in South Carolina this month. Some U.S. lawmakers have urged the Commission to quickly approve 14 other reactors that use the same model as the Vogtle plant. If the new plants at the Vogtle site move forward in a timely manner, that could pave the way for additional license approvals and a resurgence of nuclear plant construction in the U.S., and each of those new facilities will likely face a range of challenges requiring communications, grassroots and government relations expertise.

Contact John Kyte – john.kyte@bm.com